Preparing for The UK Budget

Currently, the capital gains tax (CGT) rates are 10% and 20%, depending on your tax bracket, or 18% and 28% for residential property. There is a lot of speculation on whether the following changes will be implemented:  

1. Standardisation of property CGT rates: There may be a move toward a consistent rate of 18% and 28% for all assets.
2. Potential increase to a flat 30% rate: Another possibility is raising the rate to a uniform 30%, in line with broader tax reforms.
3. Higher rate ranging from 33% to 39%: The Office for Budget Responsibility (OBR) has indicated a potential range between 33% and 39%. Although Labour leader Keir Starmer has dismissed the idea of a 39% rate, uncertainty remains regarding the final outcome.

What has been ruled out is any change to CGT on first homes, and it’s unlikely there will be increases to the CGT on residential properties after recent reassurances from key political figures.

How to Prepare for CGT Changes

If you're concerned about a potential rise in CGT, especially if you own substantial assets or property,  now might be the time to explore options like crystallising gains before the tax increase takes effect. Investing through a Family Investment Company (FIC) can also allow you to hold your assets in a more tax-efficient structure.

Inheritance tax is one of the UK’s most penal taxes, with a flat 40% tax on estates exceeding £325,000 (the nil-rate band). There is also a residence nil-rate band of £175,000 for property passed to direct descendants, like children or grandchildren.

Currently, IHT is based on domicile, not residency. Even if you leave the UK, if you are still considered domiciled in the UK, your worldwide wealth will be subject to inheritance tax. Changing your domicile is extremely difficult, so it’s essential to plan carefully.

Possible Changes:

• We could see the nil-rate band increase, as it hasn’t been adjusted for inflation in over 15 years.
• Potentially Exempt Transfers (PETs), which allow gifts to be exempt from IHT after seven years, might face new restrictions.
• Changes to Business Property Relief and Agricultural Property Relief could also emerge, potentially limiting these beneficial tax exemptions.

What To Do

It’s worth reviewing your estate plans to ensure that you’re making the most of current reliefs and exemptions. Implementing strategies that involve trust structures or lifetime gifts could help reduce potential future IHT liabilities. Contact one of our specialist tax advisers to see if you're adequately prepared.

Pensions are a crucial part of financial planning in the UK. Contributions are tax-relieved, investment growth is tax-free (gross roll-up), and pension pots are inheritance tax-free. However, changes are expected, particularly for larger pension pots.

Potential Changes:

• There could be limits on tax-free pension growth for pots over £1.5 million, which would significantly impact high-net-worth individuals.
• Rules around overseas pension schemes might also be tightened, potentially affecting expats or those with international retirement plans.

Steps You Should Take

Consider maximising your pension contributions now while current tax reliefs are in place. Additionally, if you have an international footprint, consulting with an advisor on cross-border pension strategies is vital.

• Employer National Insurance: We may see changes in National Insurance Contributions (NICs), particularly for higher earners.
• Stamp Duty: There’s a possibility of increases for overseas buyers or those purchasing second homes, which could impact investment property portfolios.
• VAT on Private School Fees: A confirmed change, VAT on private school fees could lead to a rise in costs for many families, potentially causing a shift from private to public schooling.

At Hoxton Wealth, we encourage early planning to mitigate the impact of these potential tax changes. While some strategies may no longer be viable before the budget is announced, we can work with you to implement tax-efficient structures like Family Investment Companies, trust arrangements, and cross-border tax planning.

If you want to learn more about saving money on tax planning for the upcoming budget, you can watch our exclusive webinar hosted by our UK chartered accountant, Daniel Abbott.

We’ll also be hosting a post-budget webinar to guide you through the finalised changes and provide solutions tailored to your financial situation. Stay tuned for more details, and don’t hesitate to get in touch with us for personalised advice on your tax planning needs.

The upcoming budget could bring significant changes to the UK tax landscape, but with the right planning, you can manage these changes efficiently. Whether it's capital gains tax, inheritance tax, pension rules, or stamp duty, Hoxton Wealth are here to help you stay ahead of the curve.

If you'd like to discuss your personal situation or explore our financial planning services, feel free to contact us now. We are committed to helping you secure your wealth for the future.